These are stories Report on Business is following today. Get the top business stories through the day on BlackBerry or iPhone by bookmarking our mobile-friendly webpage.
Markets await Fed announcement Rarely has a single meeting of the U.S. central bank sparked such hope, angst, speculation and debate.
The Federal Reserve wraps up a two-day meeting with an announcement at 2:15 p.m. ET today that is widely expected to launch a new round of stimulus, so-called quantitative easing aimed at pushing down long-term interest rates because short-term rates can't go any lower.
Dubbed QE2, many economists expect the Fed's policy-setting body, the Federal Open Market Committee, to announce plans to buy some $500-billion (U.S.) in Treasury paper over the course of six months, but with flexibility built into the program. Markets want to see the scope and nature of the plan.
Some think the Fed could go higher, and some believe the announcement could disappoint investors hoping for more, as some on the policy-making panel are not in favour.
The idea is to spark lending and spending to juice a badly faltering recovery, though some economists believe the program will have little impact.
Quantitative easing via Treasury purchases brings down yields, affecting the economy in the same way as lowering the central bank's benchmark Fed funds rate, which now sits near zero, noted UBS economist Thomas Berner.
"Some studies suggest that a drop in the 10-year Treasury yield is equivalent to a drop three times the size in the fed funds rate," he said. "Thus, by lowering longer-term Treasury yields through purchases the FOMC can circumvent the inconvenient zero bound of interest rates."
There could also be a spinoff effect given that the move is expected to further weaken the U.S. dollar , in turn boosting exports down the road.
But therein lies another problem. By further eroding the dollar, the Fed risks fanning the flames of a currency cold war, heightening one of the key trade tensions among global economies struggling to climb back from the recession. The United States has pointed its finger at China, urging Beijing to allow its yuan to rise. But some observers suggest the U.S. is debasing its currency at the same time, whether intentionally or not.
PIMCO chief Bill Gross has been outspoken on the issue, warning of the potential hit to bond investors but also noting that if QE2 doesn't work "then it will be a long, painful slog back to prosperity." And yesterday, he said that the greenback could be in for a 20-per-cent decline in value over the next few years if the Fed continues such a path more aggressively.
Report on Business will provide news, reaction, analysis and commentary after the Fed decision.
- The 'two-speed' world of economic recovery
- 'Big Three' central bank meetings take centre stage
- How low rates feed U.K.'s 'household zombies'
- Jeff Rubin: Quantitative easing is just devaluation
How might markets react? So far in the run-up to today's announcement, the U.S. dollar has generally weakened, pushing up other currencies like the Canadian dollar , and buoying the hopes of stock investors.
The U.S. dollar has tumbled since Fed Chairman Ben Bernanke hinted at QE2 in a speech in Jackson Hole, Wyo., in late August, declining further from the marked erosion that followed the first quantitative easing last year. What could happen today is anyone's guess.
"We expect that with the announcement of an as-expected launch of QE2 ($100-billion per month over six months, with lots of flexibility imbedded in the program), we will see further [U.S. dollar]weakness, with a similar relative return profile as what we have seen over the last few months," said Scotia Capital currency strategist Camilla Sutton.
"... Even though we have seen a material drop in the [U.S. dollar]over the last few months, there is still significant room for the [U.S. dollar]to weaken further."
Some have also suggested that the Fed's actions this afternoon are already priced into currency markets, and thus there could be a surprise reaction, depending on the scope and how many members of the panel don't agree with the course of action.
"Figures of around $500-billion worth of treasury debt have been bandied about as a consensus of the sorts of amounts that the Fed may buy in the coming months," said CMC Markets analyst Michael Hewson. "However if that does prove to be the case then we could well see a U.S. dollar rally given that other figures of around $1-trillion have been said to have been factored into the price already."
BMO Nesbitt Burns economist Michael Gregory added that the Fed should put a dollar amount on the program "for credibility's sake," even if it's just an interim figure.
"Something consistent with the consensus call, or perhaps slightly larger, should minimize the odds of major immediate adverse (from the Fed's perspective) market reactions such as higher bond yields, a stronger [U.S. dollar] lower equity prices and ebbing inflation expectations," Mr. Gregory said. "We suspect the Fed will convey that any figure will be re-assessed on a meeting-to-meeting basis."
How have stocks performed? Cyclical sectors have outperformed the broader stock market in advance of the Fed decision. Since Mr. Bernanke's late August hint, the materials and technology sector have "taken off" as industrials and transports pushed higher on a relative basis, said BMO Nesbitt Burns economist Robert Kavcic.
"Stocks are saying that economic growth, however modest, will continue," he said.
WestJet to pay dividend WestJet Airlines Ltd. is poised to pay its first dividend.
The airline-that-grew today unveiled its first quarterly dividend of $5 cents a share, to be paid Jan. 21, 2011.
"Our business model and our ability to consistently generate significant positive cash flow give us the confidence that we can maintain a healthy balance sheet while providing the necessary flexibility to fund our strategic objectives and growth plans," said chief executive officer Gregg Saretsky.
The dividend announcement came as the airline posted a 72-per-cent jump in third-quarter profit to $54-million or 37 cents a share from $31.4-million or 24 cents a year earlier. Revenue climbed to $684.5-million from $600.6-million.
So, good news for shareholders. For travellers? There's a $20 fee added for second bags, though the fee for third and fourth bags is being cut to $50 from $75.
Enbridge profit sinks, but outlook strong The cost of cleaning up spills in the United States knocked down Enbridge Inc. profit in the third quarter, though the pipeline giant still has an optimistic outlook for the year.
Enbridge said today its profit fell to $158-million or 42 cents a share in the quarter from $305-million or 83 cents a year earlier. But its adjusted profit of 53 cents, up from 42 cents, still topped analysts' estimates.
"Apart from the spills, Enbridge's core businesses in liquids pipelines, natural gas transportation and green energy continued to deliver solid and reliable operating and financial performance through the third quarter of 2010, keeping us on track to achieve the upper half of our full year guidance of $2.50 to $2.70 per share," said chief executive officer Patrick Daniel.
Analysts were also upbeat, suggesting Enbridge's performance may top the outlook.
With today's beat we would suggest the company may exceed the upper end of the range for the second year in a row," said UBS Securities Canada analyst Chad Friess.
"The company has recently layered on a number of projects which should sustain annual [earnings per share]growth of 10 per cent, as per corporate guidance. Encouragingly, the company is now venturing beyond its traditional Liquids Pipeline business to sustain [earnings per share]growth"
Agrium falls shy of estimates Agrium Inc. today posted a surge in third-quarter profit to $57-million (U.S.) or 37 cents a share, from $26-million or 16 cents a year earlier. Revenue also climbed to more than $2-billion from $1.8-billion, though the potash producer still fell short of analysts' estimates.
"We believe the outlook for Agrium's products and businesses are as good as they have ever been, supported by excellent fundamentals for the agricultural and crop input markets," chief executive officer Mike Wilson said in a statement.
Agrium's earnings follow those of Potash Corp. of Saskatchewan , which last week reported a strong quarter.
The earnings come amid a fierce and politically-charged takeover battle for Potash Corp., and a decision expected today from Ottawa on BHP Billiton Ltd.'s hostile bid for the Saskatchewan resource giant. Streetwise columnist Boyd Erman today looks at the fight.
- Agrium profit more than doubles
- Western opposition to Potash sale complicates PM's decision
- Read our complete coverage of the battle for control of Potash Corp.
Companies report quarterly results Several companies in various sectors are reporting third-quarter results today.
- Molson Coors profit rises on higher prices
- AOL revenue drops 26 per cent
- Torstar profit edges slightly higher
- Canaccord posts 44-per-cent profit gain
- ATS posts lower second-quarter profit
- Premium Brands quarterly profit falls
What do U.S. election results mean? There's angst overseas that the sea change in U.S. politics could hurt the global recovery. The Republicans, notes The New York Times today, are expected to push for an extension of tax cuts, which would add to an already swollen deficit and weaken the greenback further.
"We believe investors will likely welcome U.S. political gridlock after too much 'change,' but that means the Fed must do the heavy lifting to keep the U.S. economy expanding," said Desjardins Securities.
"... The Republicans retook the House of Representatives, but ended up with 45 Senate seats, short of the 50 needed for control. Still, with control of the House, the result will likely be gridlock similar to the Clinton years, when there was a Democratic president but Republican control of Congress. Investors love gridlock because there is no more 'change' from Washington as little gets done. Recall that stocks soared 236 per cent during gridlock during the Clinton years between 1994 and 2000."
- Democrats lose the House but hold the Senate
- A deeply divided U.S. government is tasked with building consensus
Fun with the yuan The Economist pokes a little fun at itself in a blog posting, noting a series of "awful puns" in stories about China's currency, which has been in the spotlight as a trade irritant with the United States. Here's a sample:
- A yuan-sided argument
- Yuan small step
- Yuan up, yuan down
- Tell me what you yuan, what you really, really yuan
- It's yuan or the other
- Yuan step from the edge
- Yuan-way bet
- Yuan for the money
Well ... yuan more can't hurt at this point.
From today's Report on Business
- Long-term joblessness on the rise
- Manitoba envisions route straight into heart of Asia
- Shoppers pulls support from pharmacists' group
- Toronto's aging office towers losing tenants to new eco-friendly offerings
And, read our Streetwise blog and Your Business section.